Are you charitably minded and have a significant amount of money
in an IRA? If you’re age 70½ or older, and don’t need the money from required
minimum distributions, you may benefit by giving these amounts to charity.
IRA distribution basics
A popular way to transfer IRA assets to charity is through a tax
provision that allows IRA owners who are 70½ or older to give up to $100,000
per year of their IRA distributions to charity. These distributions are called
qualified charitable distributions, or QCDs. The money given to charity counts
toward the donor’s required minimum distributions (RMDs), but doesn’t increase
the donor’s adjusted gross income or generate a tax bill.
So while QCDs are exempt from federal income taxes, other
traditional IRA distributions are taxable (either wholly or partially depending
on whether you’ve made any nondeductible contributions over the years).
Unlike regular charitable donations, QCDs can’t be claimed as
Keeping the donation out of your AGI may be important because
doing so can:
Help the donor qualify for other tax breaks (for example, a lower AGI can reduce the threshold for deducting medical expenses, which are only deductible to the extent they exceed 10% of AGI);
Reduce taxes on your Social Security benefits; and
Help you avoid a high-income surcharge for Medicare Part B and Part D premiums, (which kicks in if AGI hits certain levels).
In addition, keep in mind that charitable contributions don’t
yield a tax benefit for those individuals who no longer itemize their
deductions (because of the larger standard deduction under the Tax Cuts and
Jobs Act). So those who are age 70½ or older and are receiving RMDs from IRAs
may gain a tax advantage by making annual charitable contributions via a QCD
from an IRA. This charitable contribution will reduce RMDs by a commensurate
amount, and the amount of the reduction will be tax-free.
There’s a $100,000 limit on total QCDs for any one year. But if
you and your spouse both have IRAs set up in your respective names, each of you
is entitled to a separate $100,000 annual QCD limit, for a combined total of
The QCD strategy can be a smart tax move for high-net-worth
individuals over 70½ years old. If you’re interested in this opportunity, don’t
wait until year end to act. Contact us for more information.